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Author: Angelique Arde

Date Published: 20 July 2014

Michal Calitz, the financial adviser who was paid R8.4 million in share profits from the Relative Value Arbitrage Fund (RVAF), which was, in fact, a scam, has been ordered to compensate two more clients who lost money after he advised them to invest in it.

The RVAF collapsed after Herman Pretorius, the mastermind of the scheme, shot his business partner and committed suicide in July 2012. The scheme collected an estimated R2.2 billion from about 3 000 investors.

In the two latest rulings by the Ombud for Financial Services Providers, Calitz has been ordered to repay Dr Johannes Hartshorne R460 000 and Martha Jooste R165 000.

This brings to four the number of rulings by ombud Noluntu Bam against Calitz (Personal Finance reported recently on the previous two rulings, and the reports can be viewed at http://www.persfin.co.za).

Calitz is the owner of Impact Financial Consultants, an authorised financial services provider with offices in Bellville, Western Cape. Calitz is a member of the Financial Planning Institute (FPI) and an accredited Certified Financial Planner.

Bam’s latest rulings show that in the weeks leading up to Pretorius’s death, Calitz advised both Hartshorne and Jooste to disinvest from the RVAF – “but by that stage it was already too late”.

In both cases, Calitz had been an adviser to the complainants for many years.

Hartshorne contends that Calitz never told him that neither the RVAF nor Pretorius were registered with the Financial Services Board (FSB) and that there could be potential risks.

“On the contrary, Calitz told [Hartshorne’s] wife that Pretorius was a person of integrity and that the RVAF was performing well.”

Hartshorne also told the ombud that Calitz did not carry out a risk assessment on him.

Jooste complained that Calitz assured her that there was no risk of investing in the RVAF and that he had invested some of his own money in the fund, which “was managed by professional people with industry experience”.

Jooste’s R165 000 was her entire investible capital and had been sitting in an Absa money market investment account before Calitz persuaded her that the RVAF was her best option.

In response to both complaints, Calitz claims to have explained to his clients the workings of a hedge fund and that these instruments are not regulated but that investment manager Abante Capital through which the investments were channelled was registered with the FSB.

But in both determinations, the ombud says the key issues, as with previous rulings against Calitz, pertain to the rendering of advice to invest in the RVAF – principally, Calitz’s “failure to understand the entity and the risks to which he was exposing his clients”.

She reiterates that no adviser would have recommended the RVAF as a suitable component in “any” investment portfolio had they exercised the required due skill, care and diligence.

The FPI responds

Jacqui Grovè, the legal and compliance services manager for the FPI, says that when the news broke about the RVAF, the FPI launched an enquiry to find out whether any FPI members might have been involved in the scheme.

By the end of last year the FPI had evidence of the possible involvement of two members, she says.

“Our investigation was made difficult by the fact that, despite our best efforts, we could not find sufficient verifiable evidence with respect to these members. We then took a decision to await the results of the ombud’s investigation.”

The release of the financial advice ombud’s determinations has provided the FPI with [the] information [needed] to proceed with disciplinary action, Grovè says.

“We are now proceeding as speedily as possible, having regard for due process, with finalising hearings. We shall publish the results of these hearings.”

Although the ombud’s rulings carry the weight of a high court ruling, Grovè says an FPI member is “deemed innocent until found guilty by a competent FPI disciplinary panel of his or her peers”.

She says the institute’s purpose is to benefit the public by ensuring that its members can be trusted always to put their clients interests’ first.